Bitcoin, CryptoKitties, and gaming

We spend way too much time talking about digital currencies and not nearly enough time on digital cats.

I’ve spent a few days this week dropping in and out of the Game Developers Conference in San Francisco, and I’m struck by how quickly the video game business has been taken over by virtual goods. I spoke to executives at five game companies; most were focused on building digital worlds where people want to spend a good chunk of their time, and occasionally spend money, on cosmetic modifications to those worlds.

The idea that people will spend real dollars on virtual objects isn’t new, of course. Tencent Holdings Ltd., Activision Blizzard Inc., Valve Corp., King—these are all companies that are making millions off selling people digital costumes, gems, guns, hats and characters. But a confluence of recent events has underscored how big the coming wave of imaginary commerce is going to be.

I’ve mentioned my Overwatch obsession before, and (as uncomfortable as I am to admit it) I’ve spent $15-ish dollars buying loot boxes to dress up my virtual avatars. Blizzard has convinced me that a skin for Moira or Orisa is worth a latte or three. Norms are changing.

Last year, with the release of Star Wars Battlefront II, the ethical debates around selling virtual goods broke into the mainstream—or, at least, the gaming mainstream. The convoluted pricing system instigated a stunning moment of political activism—over a game! Critics organized on Reddit, wrote emails and boycotted the developer’s games. It was as if Electronic Arts Inc. was closing down the neighborhood school.

Developers are still trying to figure out what exactly they can get away with. But the savvy executives I spoke with mostly argued that keeping costs down and charging for cosmetic changes keeps players engaged and happy. Paying for a competitive advantage is frowned upon.

The industry’s obsession is with “lifetime value.” League of Legends, which debuted in 2009, is still a powerhouse. Microsoft Corp.’s Minecraft is holding strong. The shelf life of a video game is much longer today. They are persistent, years-long experiences.

Part of what makes Ready Player One so compelling is that the premise is sort of plausible. The book and Steven Spielberg movie, which hits theaters in the U.S. next week, is set in a virtual-reality universe created by a tech visionary named James Halliday. The real world in this fictional future is pretty bleak, so people spend most of their waking hours in a virtual one.

Game makers are focused today on building the same kinds of worlds or interactive experiences (a.k.a., not just silly games) that people want to inhabit. Forking over some money for a space you might spend hundreds of hours in over many years isn’t so crazy.

The beauty of digital goods for companies—and the peril for everyone else—is that the game maker has absolute control over commerce in its universe. Forget vertical monopolies. These are universal ones.

Perhaps the most out-there example, which is certainly built on top of the ebbing blockchain mania, is Cryptokitties. The company just raised $12 million from Andreessen Horowitz and Union Square Ventures. It takes the idea that people want to own virtual objects to its logical extreme. Why should Blizzard own the skins I buy? What if, instead, I could resell them. The idea is to decentralize imaginary cats. Less crazy than you might think.

To really double down on techno-futurism here, this seems like a logical area where the economy can go as robots build more of our tangible goods. Services and entertainment have long been considered bulwarks against automation. Designers and entrepreneurs selling digital goods in unproductive but entertaining digital escapes, well, that’s happening already today. Most of America’s coal mines may be gone, but you can still mine Empyrium Ore in World of Warcraft.

We don’t need to wait for James Halliday to build one shared virtual universe. They’re already here.